ISLAMABAD: Pakistan’s economic managers are trying to strike a balance between limited fiscal space and sky-high demands from government employees and industry for raises and tax relief in the federal budget 2026-27, coming next week.
The country’s finance ministry has almost finalised the annual fiscal policy under the guidelines and conditionalities of the International Monetary Fund in the wake of global oil and economic shocks after the Iran war.
President Asif Ali Zardari has already approved the summoning of the National Assembly budget session on June 5 at 5 pm and the Senate session at 6 pm the same day. The President has formally set in motion the parliamentary process for the federal budget for FY2026–27.
The annual budget is prepared through a structured cycle beginning with budget circulars issued by the Ministry of Finance.
The circulars require federal ministries to submit expenditure proposals aligned with macroeconomic assumptions, revenue projections from the Federal Board of Revenue (FBR), and fiscal targets under Pakistan’s IMF-supported programme.
The proposals are also sought from the private stakeholders to the economy, with the chambers of commerce and industry at the top of them.
These inputs are consolidated into the Annual Budget Statement and Finance Bill for presentation in the National Assembly.
After presentation, the budget enters parliamentary scrutiny through general debate, committee review, voting on demands for grants, and passage of the Finance Bill.
The Senate may offer recommendations, but final approval rests with the National Assembly before presidential assent.
This year’s fiscal framework is shaped by IMF-recommended consolidation requirements, including limits on recurrent expenditure growth, expansion of the tax base, and withdrawal of exemptions, which together restrict space for broad-based salary increases.
A key shift in pre-budget deliberations is the replacement of traditional salary raises with a dual strategy of tax relief for salaried individuals and restructuring of allowances to increase net take-home income without expanding the permanent wage bill.
Policy discussions indicate proposals for a 50 per cent to 100 per cent increase in selected allowances, including conveyance and category-based benefits across various pay scales, are under review as an alternative to basic pay revisions or ad hoc relief.
Government employees are expected to receive relief through possible income tax slab adjustments and reduced withholding pressures as inflation continues to erode purchasing power.
Industry and trade stakeholders are seeking lower energy costs, faster tax refunds for exporters, stable import duties, and long-term fiscal predictability for manufacturing and export sectors.
In parallel, the Ministry of Energy’s Petroleum Division has proposed reducing the petroleum development levy as part of budget recommendations, including lower per-litre charges on petrol and diesel and a cap on total levy collection to ease inflationary pressure.
The IMF programme continues to anchor fiscal policy, focusing on deficit reduction, expansion of direct taxation, removal of exemptions, and tighter control of recurrent expenditure.
The federal budget will be presented on June 5, followed by parliamentary debate, committee scrutiny, and voting before final approval.
